Estimation of permanent and transitory response functions in panel data: a dynamic labor supply

by Lee A. Lillard


Purchase Print Copy

 FormatList Price Price
Add to Cart Paperback28 pages $20.00 $16.00 20% Web Discount

Emphasizes dynamic aspects of the labor supply decision, especially the distinction between responses of annual hours worked to long-run and to short-run changes in wage rates. The model assumes that log real average hourly wage rates are predetermined by market conditions and include permanent individual wage differences, as well as a serially correlated transitory component of variation. Log annual hours of work are determined by a long-run labor supply response to the permanent wage and a short-run response to the transitory wage variation. Given the parameters of the dynamic model, one can easily analyze the role of wages, labor supply, and exogenous hours variation in the distribution of log real annual earnings over time.

This report is part of the RAND Corporation Paper series. The paper was a product of the RAND Corporation from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.

Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.